The Deficit Reduction Deal

See the pdf version of this report.

In August, 2011, President Obama and handpicked leaders from each party agreed to a deal, in exchange for congressional approval of an increase in the debt limit. Because past budgets had already approved more spending than income, it was necessary to borrow more money, just to pay current bills.

Some definitions: The deficit is the yearly amount by which not enough revenues (mostly taxes) are collected to pay for government spending that year. The national debt (the accumulation of deficits) can be reduced by decreasing spending or increasing revenues. Revenues can be increased by raising tax rates, closing loopholes, or by investing directly in the economy, so that more people are working. Spending can be cut by reducing the amounts appropriated (allowed) for specific programs, or for a whole category of program; or by changing the benefits or qualifications for an entitlement program like Medicare.

STAGE ONE: The first stage deals only with cutting spending. The bill places a dollar limit ("discretionary spending cap") on the total spending allowed for all the programs that need appropriations bills to be approved each year for their funding.

• Detail: For FY2012 and FY2013, the bill sets separate limits for "security spending" and "non-security spending." "Security spending," in this stage, includes Departments of Defense, Homeland Security, and Veterans Affairs, plus the National Nuclear Security Administration in the Energy Department (nuclear weapons), the "intelligence community management account," and the entire international affairs budget. The rest of the budget is considered "non-security spending." After the first two years, there's just one overall spending limit.

STAGE TWO: For this stage, Congress appointed a Joint Committee on Deficit Reduction, six from the House, six from the Senate, half Democrats, half Republicans. This group, known informally as the "Gang of 12," is charged with achieving at least $1.2 trillion in deficit/debt reduction over the next 10 years.

• Detail: The Joint Committee can get to its assigned goal however the members want, including investing in jobs to improve the economy (and therefore tax revenues) or, some say, by cutting taxes; they can end tax cuts that are currently due to expire, close down tax loopholes that result in some large corporations paying little or no taxes; they can cut the budgets of any department or all departments. They can include cuts in military spending or not. Nothing is exempt, including low income programs, including entitlement programs (Medicare, Medicaid, Social Security.)
• Detail: The members appointed to the Joint Committee include House Democrats Chris Van Hollen (MD), James Clyburn (SC), and Xavier Becerra (CA); House Republicans Fred Upton (MI), Dave Camp (MI) and Jeb Hensarling (TX); Senate Democrats Patty Murray (WA), John Kerry (MA) and Max Baucus (MT); Senate Republicans John Kyl (AZ), Pat Toomey (PA), and Rob Portman (OH).

STAGE THREE: The Joint Committee is required to report something by November 23, and both houses of Congress have to take an up-or-down vote on the package without amendments or filibuster. Since the Joint Committee did not come up with a plan, the Office of Management and Budget is directed to "sequester" (i.e. not spend) the amount of money needed to make up the $1.2 trillion goal.

• Detail: Security and non-security spending are capped at separate dollar amounts. At this point, the definitions of "security" and "non-security" spending are revised. Department of Defense, nuclear weapons, and a few small "independent" programs (Budget Function "050") are considered security spending, and the rest of the budget is now considered "non-security spending."
• War spending would not be counted as part of the "security" limit and would not be sequestered. Some entitlement programs for low income people would be exempt from a sequester - others would be cut proportionately to get to the 10-year deficit reduction goal. Medicare cuts for this stage are limited to 2 percent per year.

Is a sequester a good thing, given that military spending would finally be cut substantially?

For any of the next 10 years, Congress has some options. While it appears that Congress is required to meet the dual limits of spending for both security and non-security categories, it is also true that Congress can waive points of order against spending that would breach one of the caps. A simple majority in the House or 60 votes in the Senate could agree to allow military spending to rise. Then, in order to keep spending beneath the overall caps set in Stage One, Congress could agree to cut non-security spending by more than its "fair share." Would the Office of Management and Budget issue an order requiring Congress to reduce military spending further, if the overall budget plan was on track to meet the ten year budget goals? The legislation is unclear on this point.

It is reasonable to expect, given Congress's recent history and current tendencies, that cuts in military spending will be avoided if at all possible. We will see tremendous pressures each year to preserve Pentagon spending while cutting support for programs for working people, and for children and elderly, sick, and other vulnerable people.

Summary by:
Friends Committee on National Legislation
245 2nd Street NE
Washington D.C. 20002

Contact:
Ruth Flower
202-547-6000
Revised: November 21, 2011